Cost of Capital and Earnings Transparency
Mary E. Barth
Stanford University - Graduate School of Business
University of California, Berkeley - Haas School of Business
Wayne R. Landsman
University of North Carolina Kenan-Flagler Business School
Journal of Accounting & Economics (JAE), Forthcoming
Stanford University Graduate School of Business Research Paper No. 2015
Rock Center for Corporate Governance at Stanford University Working Paper No. 48
We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We base our earnings transparency measure on the extent to which earnings and change in earnings covary contemporaneously with returns. We find a significant negative relation between our transparency measure and subsequent excess and portfolio mean returns, and expected cost of capital, even after controlling for previously documented determinants of cost of capital.
Number of Pages in PDF File: 58
Keywords: accounting procedures, asset pricing, cost of capital, financial statements, risk
JEL Classification: M43, M41Accepted Paper Series
Date posted: February 25, 2009 ; Last revised: May 14, 2013
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